Speculative Equilibria of "Managed" Primary Commodity Markets
This paper sets up a model of commodity speculation in the presence of a public buffer stock intervention. Equilibrium is characterized, existence is proven and sufficient conditions for uniqueness are given. These take the form of the buffer stock having "marginal propensities to store" between zero and one. A limited policy neutrality result is proven, but where the buffer stock does have an effect, some strong contrasts with the laissez-faire case are established. For example, the equilibrium is not necessarily a constrained social optimum; a sufficient condition is given under which it is. Further, examples are given in which a putatively stabilizing buffer stock intervention actually creates a price bubble where otherwise none could exist.
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